Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Globalization, International Fragmentation and the Labour Input for German Exports

An Input-Output Analysis

WIOD Conference

26-28 May 2010 in Vienn a

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Questions to be answered

 How have German export and its import content developed over the past decades?  How does the growth in exports impact employment and income compared to its loss as a result of increased import penetration?  Which employee skills levels are impacted more than average by the import penetration of export production?

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

The Method

Standard Open Input-Output-Model x = ( I - A ) -1 y

where:

A x y = Matrix of Technological Coefficients = Gross Output = Final Demand Export-Induced Imports im ex = A im ( I-A d ) -1 ex

where:

im e x A im A d ex = Import Content of Exported Domestic Goods = Matrix of Coefficients of Imported Intermediaries = Matrix of Coefficients of Domestic Intermediaries = Exports

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

German Exports and their Import Content in the period from 1980 until 2006 a - at current prices 2000 2005 2006

[1] [2] [3] [4] [5] [6]

Exports Export goods produced domestically Re-exports Export induced imports Intermediate goods Re-exports 1980

188,7 181,1 7,6 47,0 39,4 7,6

1985

283,3 268,0 15,3 76,0 60,7 15,3

1991

374,1 347,5 26,6 99,9 73,3 26,6 [7] [8] [9] [10]

Import content of exports

([4]/[1])

Intermediate goods

([5]/[1])

Re-exports

([6]/[1])

Memo item:

Import content of exports produced domestically

([5]/[2]) 24,9 20,9 4,0 21,8 26,8 21,4 5,4 22,6 26,7 19,6 7,1 21,1 a The figures for the years 1980 and 1985 refer to the Federal Republic of Germany before reunification.

Source: Federal Statistical Office of Germany: Input-Output-Tables; authors` calculations.

1996 bn Euro

453,3 404,4 48,9 129,3 80,4 48,9

in %

28,5 17,7 10,8 19,9 670,6 576,6 94,0 251,1 157,1 94,0 37,4 23,4 14,0 27,2 900,5 760,0 140,5 358,2 217,7 140,5 39,8 24,2 15,6 28,6 1 031,2 863,9 167,2 435,0 267,8 167,2 42,2 26,0 16,2 31,0

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle     At first glance the import content of German exports increased in the 1990’s to almost 40%.

Behind this growth a strong change in the composition of German exports is hidden in favour of re-exports. The rate of re-exports in the total import content of exports quadrupled from 4% in 1980 to 16% in 2006 whereas the rate of export-induced intermediate imports increased from 20% to 26%. The strongest change was observed in the second half of the 1990’s. At second glance the import penetration of German export goods produced domestically also enhanced but less dramatically. It started from 22% of the exports in the 1980’s and reached almost 30% at the end of the 1990’s.

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Composition of German Exports - in billion Euro 1 200 1 000 800 600 Re-exports Domestic Products 400 200 0 1980 1985 1990

Sources: Federal Statistical Office Germany; IWH calculations.

1991 1996 2000 2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Composition of Export-Induced Imports - in billion Euro 500 450 400 350 300 250 200 150 100 50 0 Re-exports Intermediate Goods 1980 1985 1990 1991

Sources: Federal Statistical Office Germany; IWH calculations.

1996 2000 2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Share of Export-Induced Imports in Exports % 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Re-exports Intermediate Goods 1980 1985 1990 1991

Sources: Federal Statistical Office Germany; IWH calculations.

1995 2000 2005 2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Share of Export-Induced Imports in Total Exports and in Domestic Export Goods % 45 40 35 30 25 20 15 10 5 0 1980 1985 1990 1991 1995 2000 Share of exp.-ind. Imports in Total Exports Share of exp.-ind. Imports in Domestic Export Goods 2005

Sources: Federal Statistical Office Germany; IWH calculations.

2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Stylized Development of the Share of Export-Induced Imports in German Exports % 50 40 30 20 10 1980 1985 1991 1996 2000

Share of exp.-ind. Imports in Exports (total) Share of exp.-ind. Imports in Domestic Export Goods Share of exp.-ind. Imports in Exports (without re-exports)

2005

Sources: Federal Statistical Office Germany; IWH calculations.

2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Effects of exports on production of goods and use of income Production phase: Effects of exports on value added and employment va ex

=

x

ex . *

s l ex

=

x

ex .*

b

where:

va e x s l e x b = Vector of Gross value added induced by the export of domestic products = Vector of gross value added shares in gross production = Vector of export-induced persons in employment = Vektor of labor input coefficients per 1 million Euro of gross production

Prof. Udo Ludwig, Dr. Ulrich Brautzsch Income use phase: Effects of income induced by exports in ex = W * l ex

Institut für Wirtschaftsforschung Halle

y pc = ( 1-

k

) * in ex x in = ( I-A d ) -1 * y pc

where:

in e x W y pc x

in

= Income induced by exports = Vector of avarage wages of labour force = Income-induced additional private consumption = Income-induced additional gross production

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Net Contribution of Domestic Export Goods to Value Added - in billion Euro 700 600 500 400 300 200 100 0 1980 1985 1991

Sources: Federal Statistical Office Germany; IWH calculations.

1996 2000 2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Net Employment Effects of Domestic Export Goods - in thousand persons 10 500 9 000 7 500 6 000 4 500 3 000 1 500 0 1980 1985 1991

Sources: Federal Statistical Office Germany; IWH calculations.

1996 2000 2006

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Balance of Effects on Gross value added and Employment induced by Exports and imported intermediate Goods by main economic sectors in Germany - in % Sector Primary Secondary Tertiary Total 1980 4,2 Gross value added 1991 2,0 2006 -1,7 56,3 39,5 100,0 52,8 45,2 100,0

Sources: Federal Statistical Office Germany; IWH calculations.

44,3 57,4 100,0 Persons in employment 1980 5,7 1991 5,9 2006 1,8 58,0 36,3 100,0 52,5 41,6 100,0 38,2 60,0 100,0

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Extension of German IOTs by Skills

 Method: split of employment input by skills levels  Source: households surveys (microcensus): 5 skills levels, 71 industries, 300 occupations, 3 groups of working time, gender  Sample: 1 % per year

Prof. Udo Ludwig, Dr. Ulrich Brautzsch Low Medium High

Institut für Wirtschaftsforschung Halle

Skill Levels Preparatory education, career preparation year Vocational training, vocational school Master craftsman, technician Technical college, university of applied sciences University degree, PhD

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Balance of Employment Effects of export induced Production and imported intermediate Goods by main economic sectors and skill levels in Germany: Changes between 1996 and 2006 - 1 000 persons Low Medium High Total Primary Secondary - 40 - 67 Tertiary 419 - 39 - 14 - 93 378 83 394 1 387 585 2 391

Sources: Federal Statistical Office Germany; IWH calculations.

Total 312 1 726 654 2 692

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Employment Effects of export induced Production and imported intermediate Goods per 1 million Euro of Exports by main economic sectors and skill levels: Changes in Germany between 1996 and 2006 - in persons Primary Secondary Tertiary Low production imports

total

Medium production imports

total

High production imports

total

Total production imports

total

-0,18 -0,02

-0,16

-0,28 0,00

-0,27

-0,03 0,01

-0,04

-0,49 -0,01

-0,47

-1,29 -0,09

-1,21

-2,61 -0,10

-2,51

-0,41 -0,01

-0,40

-4,31 -0,19

-4,12

-0,66 0,01

-0,67

-1,26 0,05

-1,31

-0,01 0,04

-0,04

-1,92 0,10

-2,03

Sources: Federal Statistical Office Germany; IWH calculations.

Total -2,13 -0,10

-2,04

-4,15 -0,05

-4,09

-0,44 0,04

-0,48

-6,72 -0,11

-6,62

Prof. Udo Ludwig, Dr. Ulrich Brautzsch

Institut für Wirtschaftsforschung Halle

Conclusions

 Positive balance between gains due to growing exports and the losses caused by increasing import content of the exports.

 Production of export goods outdoes the labour intensity of export induced imports.

 There is a positive balance in skill content between exports produced domestically and export induced imports.